FT Alphaville » Markets Live transcript 5 Feb 2010

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Markets Live transcript 5 Feb 2010

Posted by Neil Hume on Feb 05 11:03.

Markets Live chat transcript for the chat ending at 12:17 on 5 Feb 2010. Participants in this chat were: Neil Hume, FT Bryce Elder

Tin hat on

Check

Chin strap secured

notch three

Check

Kevlar vest in position

Check

Right, we are ready

I guess so

right then

11:04AM

good morning

and welcome to Markets Live

FT Alphaville’s daily stock market chronicle

and we are in melt down again

Yup

No dead cat from yesterday’s sell off

In fact, we’ve taken another lurch down following some quite horrific German industrial figures

yes

they don’t look good

German industrial production fell sharply in December as the economy’s manufacturing base and the construction sector suffered a slump in output, official data showed on Friday in a fresh blow to the recovery.

The Economy Ministry said industrial output fell 2.6 percent on the month in seasonally adjusted terms, below the consensus forecast in a Reuters poll of 40 economists for a rise of 0.5 percent and weaker than even the lowest projection

The data release followed news on Thursday that Germany’s manufacturing orders for December fell 2.3 percent on the month, hit by a drop in foreign demand for goods from Europe’s largest economy.

(Taxloss: NO!)

what’s the damage in London then?

Footsie’s down nearly a tonne

Off 95 points at 5043

Just three stocks up on the day

meh

Not good, not good at all

Futures putting the Dow below 10,000 at the opening

although before that happens we have the non farm payrolls

And if we get a negative reading there …….

Well, there may not be enough tin hats in the world.

indeed

I think my tin hat has been run over this morning

and remember what happened yesterday

when those initial claims for unemployment insurance surprised on the downside

that triggered further selling

So what’s the consensus for the payrolls?

well, it looks to be around 15,000

but there are a few bulls out there

like Deutsche Bank

Given all the Sovereign issues, today’s payroll number is a bit of a sideshow. However its an important sideshow with DB expecting +75k increase a payrolls, against +15k expected by the broader market. DB is also expecting the unemployment rate to tick slightly lower to 9.8% from the prior 10.0% (market expecting 10.0%). We are expecting 7 and 9 companies reporting in Europe and US, respectively today.

Ta for that.

Now, before we push on and look at some individuals stocks

Should we take a quick European tour?

good idea

Alphaville’s European tour

assessing the damage out there

Starting with Madrid

Off 2.5%

Portugal

Germany’s easier by 1.5%

Paris off 2.4%

a sea of red

It is. A red sea.

actually

I have a quick bit of comment

on Spain and Portugal

from Credit Suisse

Garthwaite is saying sell them

and it does look like people are selling the Spainish and Portugese index

to hedge sovereign risk

anyway

here’s Garthwaite

We still believe Greece and Spain should be avoided, given:

The loss of competitiveness. We believe wages may need to fall as much as
6% in Spain and Greece, given that unit labour costs have risen 28% and
22% relative to Germany since 2000. Yet, this adjustment has not started.
Such a fall in wages would imply a similar fall in nominal GDP. The current
account deficits are still 6% and 10% of GDP, and should, we believe, end
up in surplus;

The need for fiscal adjustment: just to stabilise government debt to GDP,
Greece, Ireland and Spain have to tighten fiscal policy by 13%, 11%, 8% of
GDP respectively. This, again, requires a 5% to 10% decline in nominal
GDP;

Valuations are not exceptionally cheap on P/E and P/B relatives (except in
Ireland). Banks into sustained deflation trade down to 0.5x book.
We would avoid domestic Spain: in addition to the concerns above, the
private sector is overleveraged; bond spreads should rise to a minimum of
150bps; Spain ranks worse than Turkey on our country scorecard; housing is
still extremely overvalued; domestic Spain has outperformed by 13% since
March 2009 and trades only in line with its historic discount of 13% to Europe;
Spain, at 11% of European GDP, might be too big to be bailed out; and, finally,
European equity funds’ allocation to Spain is higher than it was in 2007.

We would avoid Greece: too much deflation is required and Greek banks trade
on 1.0x tangible book. Ireland looks cheap, wage and core CPI are falling and
politicians seem to have accepted the political risk, but the adjustment has a lot
further to run, in our view. We buy domestic Germany: undervalued currency
and housing, lowest aggregate leverage among developed countries. We
highlight the cheap names: Salzgitter, HeidelbergCement, Munich Re. The Euro
should stay weak.

11:14AM

and if you were wonderiing

how this sell off leaves us technically

well the answer is not good

obviously

but for a bit more context

here are those friendly chaps from Olivertree

Yesterday we sent a chart plotting Debt/GDP v Fiscal Deficit for European countries – reviewing this against performance of equity markets we can see that y/days equity moves were directly correlated to this ratio.

(that was our chart du jour)

Specifically where fiscal deficit/GDP was at highest equities were sold off most and visa versa. Volumes in exchanges were also aligned to this ratio with eg. Spain up 56% v’s previous day, France +40%.We think its important to acknowledge this so that we can understand the dynamics of y/days move.The US was interesting in that cash volumes were up 34% but major ETF volumes(XLF/XLE) were up 100-105% suggesting that accounts strategies focused on taking down delta risk by overlaying short ETF positions, therefore maintaining single stock longs.

By shorting highly liquid instruments like this there are 2 takeaways – firstly any reverse in markets could be particularly extreme as shorts will be able to cover quickly and secondly, by implication, short base in large caps has increased and would therefore look to this area of cap curve to rally hardest on mkt reversal.

Soveriegn risk concerns remain centered on short term debt issuance v’s long term obligations and risk that REPO mkt particularly freezes.For Spain who issued 75% of debt in 2009 with less than 12 month maturity there is a real isolated concern. The standout anomoly y/day was the UK which performed much stronger than fiscal deficit to GDP/Debt would have suggested but we think this is justified in light of the control they have over their monetary policy. EMEA outflows (highest for 24 weeks) will continue to temper performance.We remain impressed by the constructiveness of index volatility(VIX at 26) and credit markets(with European Xover at 455bps over). Support levels shifted y/day – we now look to 1037/42 S&P cash as first support and more importantly 1018/20(previously 1010).

11:15AM

Right

Bryce has just gone off

to see if he can find this Goldman payrolls call

they are going for a negative number

in the meantime

this has caught me eye

No luck yet.

RTRS-HEDGE FUND BLUE GOLD DENIES IT WAS RESPONSIBLE FOR VOLATILITY IN CRUDE OIL PRICES IN LAST FEW DAYS
11:11 05Feb10 RTRS-HEDGE FUND BLUE GOLD SAYS OIL OUTLOOK BULLISH FOR 2010, DIFFICULT TRADING ENVIRONMENT
11:13 05Feb10 RTRS-HEDGE FUND BLUEGOLD SAYS BUSINESS AS USUAL, DENIES RUMOURS ABOUT ITS CONTINUING OPERATIONS

anyone heard of Blue Gold?

They hired one of the top people from Morgan Stanley I think

Stephen Jen

http://www.bluegoldcap.com/

Expert on SWF, apparently.

seriously annoying website

Now

I hadn’t heard of anyone moving the crude market in recent days

right

we have a bit of background on this lot

May 7 (Bloomberg) — Stephen Jen, a former foreign-exchange strategist at Morgan Stanley who was one of the first to predict the past year’s dollar rally, will join $1.1 billion commodity hedge fund BlueGold Capital Management LLP.

Jen will be managing director of macroeconomics and currencies, according to BlueGold Chief Investment Officer Pierre Andurand, who started the London-based fund in February 2008. Jen will start in two weeks, he said by e-mail.

It’s a good skill-set to introduce,” said Christopher Peel, London-based chief executive officer of BlackSquare Capital LLP, an investor in hedge funds. Macroeconomic and currency specialists can give commodity funds “an edge in forecasting forward demand and supply curves,” Peel said today by telephone

looks like

they made a massive profit during the oil bull run

BlueGold returned 209 percent last year after anticipating crude oil’s rally in the first half and subsequent collapse.

Where’s Debbie Downer when we need her

11:19AM

Right – Lotus Notes is refusing to spit out the Goldman payroll forecast

So let’s go elsewhere

How about kicking off with Icap?

hmmm

why not

Now I suspect it won’t be the profit warning

that makes the headlines tomorrow

it will be the fact that Michael Spender

sorry

Spencer

slotted a load of stock

three weeks ago

Freudian Typos r Us

Here’s the RNS

from Jan 11

“On 11 January 2010 IPGL’s subsidiary company INCAP Finance B.V. sold 7,000,000 of the 118,069,560 ICAP plc ordinary shares it owns at a price of £4.40 per share. The proceeds from this sale will be used by IPGL to continue the reduction in leverage on its balance sheet in which it has made significant progress during the past year. IPGL had previously planned to make other asset disposals, as part of the rebalancing of its investment portfolio, a process which it expects to revisit as liquidity & value returns to alternative asset classes.”

Michael Spencer, the founder and chief executive of ICAP plc, together with his wife and family trusts, are majority shareholders of IPGL Limited.

In addition, Michael Spencer sold 3,308,248 at a price of £4.40 per share of the 6,140,778 ICAP plc ordinary shares comprising his personal interests.

Following this transaction, Michael Spencer had a personal interest in 2,832,530 ICAP plc ordinary shares and through IPGL he had a further interest in 111,069,560 ordinary shares. Together these represent 17.4% of ICAP plc’s share capital.”

So that’s just over 10m shares at 440p a pop

and where are they now Bryce?

As of this moment, we’re below 300p

down 18% on the day.

jeez

that can’t all be on the profit warning can it?

after all

Icap has been weak since the Volcker stuff

Hm.

(thanks Monkey)

Perhaps there’s a bit of … um … disappointment

yes

let’s call it disappointment

At the rather crude slotting of stock by the Conservative Party Treasurer three weeks before the alert?

yes

Yes, disappointment.

I for one am very disappointed by that

So what’s gone wrong in the past three weeks?

well

Icap has lowered guidance for the year to March 2010

to £295m-£315m

now to put that in context

In November management emphasized they were confident of meeting consensus underlying Mar 10 PBT of £311m-£347m.

So what’s caused it?

Well, Icap is saying that it is all down to new investments taking longer than expected to reach profitability

here’s a line from Citi on the profits alert

Miss blamed on new investments taking longer to achieve profitability – ICAP
details that the trend of softer volumes mid-Nov to end-Dec hit interest rate
products. However, their lowered PBT guidance is more attributed to investments
taking longer to break-even. We understand this refers to slower-than-expected
equities volumes and the Brazilian integration taking longer to strip out costs.

Merrill

also comes up with a similar conclusion

The issue appears to lie in the company’s new businesses. These were broken
out in H1, when it transpired that overall the new businesses had lost £7m. At the
time, the company was optimistic that these businesses would begin to be
profitable. Judging by the company’s narrative, this is not the case; the
performance here is described as “mixed”. Crudely, it sounds as if Brazil is
performing decently and ship broking and cash equities are finding the going
tough

So, we reckon that this, with a hint of a slow start to Q4, lies behind the
company’s guidance. Whilst we do not regard ICAP as a company which is likely
to tolerate poor performance for a protracted period, it is committed, rightly in our
view, to investing in new businesses; they say in the statement that the case for
this “remains compelling”. As a result, we suspect that these businesses will
continue to produce lower profits than we had hoped in FY 11 and beyond, hence
our estimate cuts.

Actually, it might be unfair to note that Numis had a bit of a stinker on this one.

yes they did

but at least they have owned up to it

and this is an occupational hazard

Yup – this is from James Hamilton.

Who’s never shy about coming forward with an opinion, which is good.

Unfortunately, his timing was a bit off.

MEA CULPA

ICAP have guided to underlying profitability in the range £295-315m for the year
ending 31.03.2001. We have reduced our forecasts from £332m to £303m reflecting
slower market conditions and the delay in some of the newer business reaching
profitability. We suspect the equities business has been particularly weak. In
addition ICAP are taking a $25m exceptional charge to settle a SEC investigation
into its US fixed income trading operations. We are reducing our target price to
321p from 420p which equates to 10.2x earnings. Our recommendation moves to
Reduce after a rather unfortunate single day at Add.

If only we could all have the remarkable timing of Mr Spencer.

hmmm

I fear he will be crucified tomorrow

11:28AM

Right back to the market for a moment

slight rally on the FTSE 100

Five risers now!

only off 90 points at 5,048

at the moment

And what about FX?

well

the euro off earlier lows

now at 1.3703 against the dollar

as for the GBK

well $1.57 against the dollar

which seems to be the safe haven again

and against the euro

0.872

as for gilts

let’s have a look

10-year gilt yield is now at 3.866%

so the end of QE

has not caused a ripple

safe haven buying offsetting

11:31AM

Talking of government paper ….

Did you see Taleb’s comments?

what on US Treasuries?

Yup. Here’s Bloomberg’s take of the story.

Feb. 4 (Bloomberg) — Nassim Nicholas Taleb, author of “The Black Swan,” said “every single human being” should bet U.S. Treasury bonds will decline, citing the policies of Federal Reserve Chairman Ben S. Bernanke and the Obama administration.

It’s “a no brainer” to sell short Treasuries, Taleb, a principal at Universa Investments LP in Santa Monica, California, said at a conference in Moscow today. “Every single human being should have that trade.”

Taleb said investors should bet on a rise in long-term U.S. Treasury yields, which move inversely to prices, as long as Bernanke and White House economic adviser Lawrence Summers are in office, without being more specific

Every single human being. whoa.

Strong stuff, I agree.

Gary Jenkins of Evo has been commenting on this

We said on the 15th January that Greece could potentially become the next Lehman’s, and we are now seeing the development of a very dangerous contagion effect. Unless the markets calm down then corporates that are otherwise healthy may struggle to raise funds because of the location of their business. Let alone the fact that the likes of Greece and Portugal sill need to regain the confidence of the investment community if they wish to fund themselves on the capital markets. The odd thing is that if the EU officials who spoke aggressively of not assisting Greece had taken the opposite tack, those words may have prevented the current situation.

Talking of books, the author of the brilliant “Fooled by Randomness”, Nassim Nicholas Taleb (he also wrote “The Black Swan”) was quoted yesterday as saying that it’s a “no brainer” to short treasuries… “Every single human being should have that trade”. I worry that my Mum down in Milford Haven is going to try and ask in the local shop for “ a loaf of bread, two pints of milk, some carrots….oh and can I short some treasuries please…”* Anyhow 10 year Treasury yields ended the day some 10bps tighter to yield 3.61%.

And there’s a nice punchline on it

go on, let’s see it.

My Mum did point put that if everyone was short treasuries, then surely that meant that the US could not fund itself and would go bust. In which case, technically being short would be the right trade, but in the circumstances of an event such as the default of the US, that might not help because it is likely that your counterparty might also be bust. She is therefore sticking to being long tinned food…

that’s very good

go long tinned food

and Tin Hats

11:34AM

is there anything up this morning?

anything vaguely positive?

Well, Liberty’s up.

on the break-up news?

Yeah – Dan Thomas scoop in the paper this morning.

COnfirmed by the company

they are going to split the shopping centre business

which owns lovely places like Lakeside

and the MetroCentre

from the London properties

things like Earls Court

Liberty International PLC (LII:LSE): Last: 457.10, up 4.8 (+1.06%), High: 467.10, Low: 453.30, Volume: 1.81m

and this is positive?

According to the brokers, it is.

Here’s the valuation work from SocGen, which reckon 10% upside

The Board has confirmed that it is considering demerging the London-focused
entity from its shopping centre business (Capital Shopping Centres). This would imply a
return to the original structure focused on shopping centres. Based on 2009e figures,
total asset portfolio is £6.5bn in front of £3.2bn of net debt (LTV of 50%). CSC runs
about £4.9bn of retail assets (14 regional malls in the UK, US properties and JV’s in
China) and Capital & Counties (CAPCO) the other £1.6bn (Covent Garden, Earls Court
and Olympia, offices). Our initial calculations show most of the net debt is securitised
(£1.5bn in two CMBS notes) to the retail portfolio for about £2.3bn (LTV of 49%). The
remaining net debt is attached to CAPCO for £0.9bn (LTV of 56%).

Impact The c. £750m cash holdings (£570m at end Jun. 09 + £230m from the capital
increase in Sept. 2009 – £50m in dividend and capex) should be entirely allocated to the
retail entity as the company has about £700m of debt to mature this year and next (o/w
a CMBS note due in 2011 for £480m). The Retail vehicle should then carry an asset
portfolio of £4.9bn with £2.3bn of net debt and £0.2bn of financial derivatives, given an
implied equity value of £2.4bn, and should stay in the FTSE100 as the smallest company
has a c. £1.6bn market cap. We estimate the London vehicle should carry an asset
portfolio of £1.6bn, £0.9bn of net debt, leading to an implied equity value of £700m.

Target price & rating Our unchanged TP is based on fair value of 476p resulting from
the three standard SG metrics: a 10yr DCF model of 323p (WACC 8.4%, 2.5% growth to
perpetuity), a Gordon-Shapiro model imputing a normalised dividend at 603p (CoE of
10.4%, Beta 1.1), and a 10yr DDM (assuming terminal value at NAV) at 503p, to which
we apply a 4% premium to reflect the share liquidity factor.

Next events & catalysts Current market capitalisation is £2.8bn (452p/s) so if the split
occurs at our estimated NAV for the end of the year of 497p/s (£3.15bn) this implies
about 10% upside to current share price. The company will release its full year 2009
figures in late February (SGe 26/02).

And here are a few lines from Herm Meijer at JP Morgan

Liberty to split: Shopping Centres & London – positive. Liberty International is the final stages of a two way demerger, the FT reported overnight, and has now been confirmed by the company (see below). The company plans to separate its £4.4bn shopping centre portfolio from its £1.7bn London portfolio. Liberty’s current market cap is £2.8bn; the FT reports the market cap of the shopping centres division is expected to be more than £2.0bn, and the London portfolio around £1.0bn, implying the company sees around £200m (7%) value creation from the process. The move is being led by Liberty management, which sees this additional value creation, as well as the advantage for shareholders being able to choose which part of the market to invest in, as motivation for the move. Although we see the move as positive, we currently prefer other UK large caps, particularly British Land and Hammerson.

The move is likely to reignite debate over whether REITs should be sector specialists, or diversified cross-asset investment companies, following Land Securities’ failed demerger last year, the FT reports. We agree, but it is not only about being specialized, size also plays an important role. In this perspective, a break up would arguably make sense (assuming limited additional costs) and we believe the London portfolio could be a highly attractive company. We believe the shopping centre portfolio will be less interesting at this stage, but believe the increased focus could make it an attractive takeover/merger candidate.

For example, in our recent note 10 Must Know Facts we examined the long term value creation of the UK large caps vs. investment in the direct market, and small companies. Since 1970, the large caps struggled to outperform the ungeared IPD index (see pp.14-17), while we found two smaller companies Great Portland (focused) and in particular Helical Bar (smaller, but cross-asset) outperformed.
Liberty confirms: Liberty confirmed this morning that it is actively considering a London/Shopping centres demerger, and that such a transaction requires a number of third party approvals, “some of which have been requested and some of which are currently outstanding. The board will be in a position to decide whether to proceed once these approvals have been progressed further”. (Source: Company press release).

Of course Land Securities tried to spilt itself in two

and decided not to

ostensibly because of the credit crunch

but it does raise an interesting debate

are some of the prop cos

like British Land

and Land Secs

just too big

too lumbering

do they all have to be split up

And,. as Harm notes, a smaller Liberty will certainly provide a catalyst for the Westfield / Simon Property rumours to revive.

that’s true

could pave the way for a takeout

Possibly. Another one of the great stale bid stories, that one.

11:40AM

Market update

FTSE 100

still hanging in there

still down 90 points at 5,047

holding on

ahead of the payrolls

any luck with that Goldman call yet?

Hang on – their US morning pack should be through by now.

while we wait

let’s see how a big oil company

is holding up

amid the selling

Gulf Keystone Petroleum (GKP:LSE): Last: 78.50, down 5.5 (-6.55%), High: 84.50, Low: 78.50, Volume: 2.67m

Hm.

Oh dear

Giving lots of speedboat-owning punters the opportunity to buy more, I guess.

indeed

In preparation for it becoming a supermajor.

11:43AM

Enough of that

where now?

BA have had results

anything interesting there?

Um – not a lot we didn’t know already

British Airways (BAY:LSE): Last: 206.20, down 5.1 (-2.41%), High: 216.20, Low: 206.00, Volume: 15.00m

just looking at the statement

Costs seem to be better

they made a loss

£50m

but a lot of the market was looking for something much bigger

like £177m

once again cost control

has been good

but traffic is not improving

Yes – 10.5% off the cost base

outlook statement a bit positive

but BA had a good run

in the past couple of weeks

Largely “buy risk,” I’d argue, which doesn’t look overly smart today.

Anyway, here’s Deutsche Bank with their take on the numbers

Q3 operating profit of GBP25m
Operating profit of GBP25m (GBP51m Q3 09) was considerably better than
consensus expectations of an operating loss of GBP95m. Revenue of
GBP2,038m (-11.1% YoY) was broadly in line with expectations but the cost
cutting was ahead of expectations.
Non-fuel cost reduction target upgraded
The company expects non-fuel costs to decline by GBP350m for FY03/10e
(from GBP275m at H1). Employee costs were down 10.9% in Q3 in line
with our expectations but engineering costs fell 19.9% considerably better
than our estimate.

Yield trend improving against a weak base
Passenger yield at constant currency was down 7.7% in Q3 compared to a
an 18.2% decline at H1. the company said that long-haul premium continues
to show modest YoY improvement however non-premium revenue will require
a return to economic growth to deliver historic performance levels.

(Chopper Bear out of GKP shock)

And Credit Suisse

(well some of it)

3Q impressively ahead of forecasts: British Airways has reported a 3Q10
operating profit of £25m, ahead of our forecast of a £99m loss and up from a
loss of £51m in prior year (Bloomberg consensus -£93m). EPS came in at -
3.6p for the quarter (CS -11.2p). BA has now lost £86m at the operating
level for the nine months to December 2009 compared to an £89m profit
comparative. Revenues declined by 12.9% and costs by 10.5% in the
quarter.
■
Revenues revving up: BA’s performance in 3Q is encouraging on the
revenue front with passenger yields down only 11.1% yoy (CS -12%).
Further, it has taken £300m of costs out of the business in the nine months
to December. It guides that it expects a comparable trading improvement in
4QE (excluding the impact of potential industrial action), while long haul
premium contunues to improve.

Catalysts and more catalysts: (i) imminent result of High Court case with
cabin crew/Unite union, (ii) imminent transatlantic anti-trust immunity (ATI)
decision from US/EC regulators, (iii) Iberia merger agreement signing, (iv)
Investor Day on 4 March when BA should provide early guidance on FY11E,
(v) pension fund deficit recovery plan due by the end of June.
■
Valuation – TP 285p, Outperform: We continue to rate BA outperform, as
our joint top pick in the sector with Iberia. Revenue momentum is developing
at an encouraging pace, and we expect an improvement in FY10E
consensus with FY11E consensus EBIT moving up from £167m to nearer
our forecast of £397m. Our current valuation reflects an underlying business
valuation of 214p, before 33p and 38p of synergies factored in on a
probability weighted basis from expected Iberia and ATI deals, to produce a
TP of 285p.

That’s enough BA I think.

yep

but thanks for that

11:48AM

Readers trying to come up with new names for Spain

now

we here at the FT

aren’t allowed to use a certain porcine

acronym

the editor popper by to tell us today

and nor are BarCap

hang on

trying to get the email

that their head of research

pinged round yesterday

Acronyms
>
> Please alert your teams not to use the acronym PIIGS in any written
> communication.
> Rather, they should spell out the acronym and say: Portugal, Italy,
> Ireland, Greece and Spain.
> Research Production globally have been informed to take out any
> reference to the acronym in question.
> Thank you.
> Valerie

This is going to increase the page count of Barcap notes significantly

it’s POLITICAL CORRECTNESS GONE MAD (c. Littlejohn)

Bryce

it’s like the war

you can’t mention it

i tried it once

and think I got away with it

but never again

they send people round

to educate you

Could we change it to “Gipsi”?

probably not

I guess that’s not any better really.

11:52AM

Right

I have found something else positive

food

not comfort food

by contract catering

Compass

Discomfort food.

massive outperform today

hang on

what’s happened

market has suddently spiked higher

now down just 80 points at 5,056

is there some news out??

what’s wrong with the ROTR?

Are we really calling 10 points a “spike”?

well every little helps

Guess so.

in this environment

Anyway – back to Compass

yes

big outperformer

Compass Group (CPG:LSE): Last: 447.50, up 19.7 (+4.60%), High: 450.70, Low: 433.00, Volume: 10.01m

and that’s on the back of a good trading statement

that shows revenues

picking up after a bad Q4

Compass has made a good start to the year
Organic Revenues declined by 1.7% in the first quarter of the year, an improvement from the minus 3% in Q4 of the previous year
Sales trends have improved in all four divisions and the pipeline of new business remains strong
Operating Margins have shown a further good improvement
The shares represent a defensive, overseas earnings play ( over 85% of profits from overseas)
Valued on P/E of 13.5 times, 7.9 times EBITDA and 3.3% yield ( on the basis of our forecast of £ 810m pre tax ) BUY

that was from Oriel

Any more?

hang on

here’s Investec

Today’s IMS confirms that Compass has had a good start to the year, with the
trend in organic revenues improving from the fourth quarter of last year and
further good margin growth achieved. Free cash flow remains strong. We will
not be changing our forecasts for the full year, but place our target price under
review. We reiterate our Buy recommendation in a strongly managed business
with good growth prospects over the medium term.

Outlook. Overall, therefore, despite the difficult economic environment, the
group has had a good start to the year, which we believe underlines the quality
of the business and the management team. We are unlikely to change our

forecasts on today’s announcement but place our target price under review. We
reiterate our Buy recommendation in a very strongly managed and high quality
core holding.

Ok – ta.

11:56AM

and the rally continues

FTSE 100 now down 78 points

that 20 points lost since we have been on air

Hm. Is there a payrolls whisper number in circulation?

dunno

getting some calls

hang on

Now

on Icap

it appears Spencer is not around today

to answer questions

he is in New York

having important meetings with customers

Hm.

11:59AM

Oh, and as to that long-promised Goldman payrolls note

excellent

thanks

Well, a reader has sent this through so I can’t swear by its veracity

Nevertheless, here it is

The fundamentals of the labor market appear to be improving gradually. Layoffs are still drifting down, signs of life have emerged on the hiring front, and surveys of employment conditions in January look slightly better.

However, Friday’s employment report—particularly the payroll count for January—will be influenced by several special factors that may obscure the underlying trend: 1) Census hiring (a small positive), 2) generally colder than usual winter weather (negative), 3) the impact

of annual “benchmark” revisions on the current rate of employment change (likely a modest negative), and 4) the interaction of a very bad employment year in 2009 with January seasonal adjustments (extremely uncertain, but potentially a large positive).

Our preliminary forecast, released last week, is for a decline of 25,000 in nonfarm payrolls and a slight increase in the unemployment rate to 10.1%. This forecast includes all but factor 4) above, and was formed prior to yesterday’s positive employment indicators; it remains subject to change based on information to be released Wednesday and Thursday morning.

ta for that – FTSE 100 now down 75 points.

(TFT1, that’s right. Andrew Balls, ex-FT and Lex too)

12:01PM

Ok – anything to wrap up on?

not from me

this latest melt down

has knocked all raw on the head

RAW is market chatter – information that has not been formally tested through traditional journalistic channels (PRs etc). The story might be complete rubbish, but if we believe there is some substance to it we will say so. Either way, Reader Beware.

not even some outlandish Friday

story

not even talk of something appearing in the Sundays

Sell-offs are horrible to report.

Once you’ve written the “biggest since” stuff, you’ve got nothing left to say.

oh yes

I forgot about ISAT

Murp reckons it could be Monday now

whatever it is

reports this morning

of Harbinger selling its Tate stake

to buy Inmarsat

but given the Tate stake is worth just £180m

I can’t see why they would need to do it

anyway

(Taxloss – we’re told to avoid cliches like the plague)

Inmarsat (ISAT:LSE): Last: 704.50, down 9.5 (-1.33%), High: 716.00, Low: 703.00, Volume: 767.51k

Tate and Lyle (TATE:LSE): Last: 404.20, down 6.3 (-1.53%), High: 411.50, Low: 399.20, Volume: 979.69k

12:05PM

Just to finish up

WSJ reporting that Tullow whas agreed to sell its Ugandan assets to the Chinese

Cnooc paying $2.5bn, it claims, with news expected today.

And, since the ROTR remains obsessed with Avram Grant ….

I respectfully draw your attention to the story in the Times, which has the best intro I’ve read in some time.

As befits a woman famous for drinking her urine and bathing in liquid chocolate and spaghetti live on television, Tzofit Grant had an idiosyncratic response yesterday to the news that her husband was seen visiting a Thai “massage parlour” near Portsmouth’s training ground last December.

http://www.timesonline.co.uk/tol/sport/football/premier_league/portsmouth/article7015876.ece

come on

what was the response

“He phoned me to warn me about the publication and my response was ‘Yes, and?’ ” Tzofit Grant, a television presenter, told a radio station in her native Israel. “If he has gone to a brothel it is no one’s business.”

very understanding

Indeed. Mr Grant’s a fortunate man.

right

some chatter coming through on International Power

some of this was in the Telegraph today

apparently in the bond market

some talk that GDF are about to do a convert

the proceeds will be used to increase their holding in something to 49%

and apparently

that means the bid, merger, reserver takeover for IPR is off

not that it really ever appeared to on

International Power (IPR:LSE): Last: 313.80, down 3.1 (-0.98%), High: 322.10, Low: 310.20, Volume: 7.55m

this doing the rounds now

IPR LN – SPEC THAT GDF HAS LOST INTEREST…

…abandoned its takeover plans, & wants to increase stake in Suez Enviroment to 49% via a Convert Issue

Hang on – that story rings a bell.

Don’t say it was on Dealreporter

Steady …..

we can’t go there anymore

No – but the Suez angle has been all over the French press since November or so

right

Will have to do some digging on this.

My memory’s not what it was.

nor mine

too much newsflow out there

right

we should just wind things up

before we do

A bit of comment on EMI

via a reader

now flicking through the financial statements

one get the impressions that Mr Hands is just about hanging on

but really

he should just probably admit defeat

except he paid to much

and used to much debt

and return the keys

jingle post style

Can’t really argue with any of that.

pg6 of the pdf also suggests that even if they raise capital to cure this covenant breach, given current forecasts they’ll also need to raise further capital to prevent another breach in 1Q11. Sounds like a cracking investment.:

Also the pension fund is buggered, the pensions regulator is involved and any agreement is likely to require further payments and, you guessed it, further equity:

As pesto has pointed out, with EBITDA (adj) of 300m, even if you were being massively generous and decided to apply a 10x multiple, you would get to an EV of £3bn. The debt to citi alone is 3.1bn (note 18), plus tax owed, plus negative working capital of about £400m plus swaps of 259m plus…. bust bust bust.

Note 18 is interesting in that Citi extended further credit during the financial year (about 500m) – must have been a preagreed facility, and that shareholders agreed to adjust their 8% 2017 loan to a 0 rate – effectively reducing the PV by £800m (ouch).

There’s nothing particularly remarkable in there – It’s just a company in decline with too much debt and an owner who should hand back the keys – but seems intent on throwing good money after bad. Hopefully the shareholders will smell the coke and stop that.

There is more on this on the Long Room

I think Monkey has done some analysis

but it does look increasingly

as Citi and Vikram Pandit

will soon be mixing with pop stars like Katy Perry

12:13PM

Right

nearly done

there IS a NFM whisper number

doing the rounds

And?

+56K….CONS = +15K

NON-FARMS: SNAP PREVIEW…buckle up
- January Non-farms report comes with markets nervous following the
worrisome jump in the initial claims data yesterday and of course sovereign
concerns on the European peripherals; they had been on an improving trend
until mid-January due to a backlog of filings after the Christmas break.
- So the risk to today’s employment report is skewed to the downside. The
report will include annual revision that is expected to show an additional
loss of 842k — not a pretty picture for an already anxious market, and
although that feature of the report SHOULD BE KNOWN White House press
secretary Gibbs let slip that the revision could be worse.
- Consensus expects small +5k reading on payrolls following an 85k drop in
December with unemployment rate rising to 10.0%.
- Should be fun around one.

Right – so that would partly explain the rally.

indeed

FTSE 100 now off 80 pointgs at 5,059

the rest of the day hangs on the NFM

Right

I have nothing else to say

Bryce?

Nope – I’m done as well.

thanks everyone

for logging on this week

been very entertaining

good to have some news to write about

even if it is all apocolyptic

(Lorcan: payrolls due at 1.30pm our time.)

Have a good weekend, all, and see you Monday.

yes

have a good weekend everyone

come on England

come on Arsenal

see everyone on Monday

This entry was posted by Neil Hume on Friday, February 5th, 2010 at 11:03 and is filed under Uncategorized. Edit this entry.

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Markets Live transcript 5 Feb 2010

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